I got this from a pretty sensible fellow over email. I haven’t had time to confirm it myself, let me know what you folks think in the comments.

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A very little reported part of the law passed last night to end the government shutdown is described below:

The Devil Is in the Details. While the debt ceiling remains in play, going forward, the process for handling it has been changed. Instead of the Congress having to approve an increase in the debt ceiling, where withholding such approval had been used as negotiation leverage, the President now simply announces that he is waiving the debt ceiling. If Congress objects, it has to pass legislation to reject the President’s waiver. The President can veto that legislation, where a veto override would require a two-thirds majority of both the House and the Senate. Neither the passage of an override of the waiver in both Houses, nor an override of such enacted legislation, is possible in the current political environment.

I have confirmed with Senator Alexander’s office that this is in fact part of the law passed last night. They claim it is only temporary until February 7th. My guess it will become permanent before then.

If it’s temporary until Feb 7, then it’s not much of a threat. In other words, it will expire and we’ll go back to where Congress can use the debt ceiling as leverage.

Yeah except if they were trying to permanently change the rule, isn’t this how they’d do it? If they put in a clause that said, “The President can declare martial law if Bob Murphy wins American Idol,” on the one hand that poses no threat, but you’d still blog about it, wouldn’t you?

Bob, this is essentially the same thing they did in the 2011 debt ceiling deal. Basically, in 2011, instead of Congress passing a bill directly authorizing the President to borrow X number of dollars, Congress passed a bill that authorizes the President to inform Congress that he plans to borrow X number of dollars, and then Congress has an opportunity to stop him by passing a Resolution of Disapproval by a 2/3 vote, which almost certainly wouldn’t happen. This two-step process, dubbed the McConnel was basically kabuki theater, a way for Congress to raise the debt ceiling by X dollars while making it seem that the President was just borrowing money on his own and Congress didn’t have the votes to stop him.

What was just done now is a slightly more complicated version of that. You see, earlier this year, when the debt ceiling came up in February or March, instead of just raising the debt ceiling, Republicans passed a bill suspending the debt ceiling until May. So until May, the President could borrow as much as be wanted without going through Congress, which is why we’re only hitting the debt ceiling now. The bill passed last night does the same thing, suspending the debt ceiling until February, but it combines that with the kabuki theater of he McConnel plan, so that Congress can pretend like it didn’t suspend the debt ceiling until February at all, they just didn’t have the 2/3 votes to stop the President from suspending the debt ceiling until February.

As to your friend’s guess that “it will become permanent”, that’s very unlikely as long as Reublicans control the House. Obama tried proposing a variant of this back in February: he wanted Congress to pass a version of the McConnel plan except instead of raising the debt ceiling by some finite amount X, we just raise the debt ceiling to infinity with the same kabuki theater of the resolutions of disapproval, so that the debt ceiling would basically no longer be binding on the government’s ability to borrow. But Republicans vehemently rejected his proposal, and I don’t think they’d accept it in future. I expect more showdowns over the debt ceiling next year.

Wait a minute, this has happened before? You guys had me convinced the government couldn’t possibly have reprogrammed their computers to prioritize payments in the 48 hours they had, to realize there was a possibility of a debt ceiling crisis.

Prof. Murphy(and his reader) might well be right. Just like most congressmen have accepted that the president can now go to war because it takes away responsibility from them and thereby accountability, they might welcome this as well. Sure the Tea Party folks won’t like it but everybody else?

I wonder for example how relieved the hawks are with this because they must understand by now that in the case of budget squeeze the public will look straight for the defence budget. By proxy then, any budget fight could well result in a cut in defence which is always to be avoided. Don’t get me wrong the conventional Washington mantra and ideology of “responsible governing” etc. is probably also a big factor.

I could at least understand if the debt ceiling would rise with inflation automatically. A nominal debt ceiling in a specifically created price-inflationary environment is really strange. They could have spared themselves a few embarrassing stand offs this way.

And at least this would also lead to one incentive to rather overreport inflation numbers in contrast to a countless incentives to rather underreporting it (like GDP, pensions, other benefits, credibility in keeping prices stable etc..). Are there actually any other incentives for the government to rather overreport inflation?

I still think the entire event had nothing to do with finance. They needed an excuse to shutdown a few key government programs in an attempt to rally support for more future government. Think about all the takers that got a wakeup call and are now banging the drum.

Hate to think what would happen if I mentioned ending the Fed, unknowing in the home of a veteran who went without a check for 3 weeks…